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Why Scotiabank Jamaica Ltd

Observer Business Leader Nominee # 11

Today, we publish the 11th of 15 stories on the nominees for the Jamaica Observer Business Leader Corporate Award. To be considered for nomination, all companies had to be at least 50 years old, or be able to trace their roots to 1962 or before. The award presentation and announcement of the Business Leader Corporate will take place on Sunday, December 2 at the Jamaica Pegasus Hotel in Kingston.

IT took many years of prodding from merchants and other members of the business community for the directors of Scotiabank in Halifax, Canada to overcome their deep-seated misgivings about establishing a branch in Jamaica.

But once they relented, and the operation was up and running, trepidation gave way to optimism.

Downtown Kingston was the choice location for the first branch in 1889; it was the centre of the country's commercial activities. The Canadians rented the downstairs of a building at the corner of Church and Port Royal streets, and Scotiabank was in business.

Without a doubt, Scotia is today one of Jamaica's most successful businesses, ever. Its impact on the economy has been immeasurable.

The evolution of this institution from a provider of retail banking services into the full-fledged financial network that it is today has been gradual and judicious. This is in line with the conservative nature of its parent company.

Scotia Group had assets valued $332 billion as at October 31, 2011, its financial year-end.

It had $95 billion in loans to individuals and corporate clients.

The size of the loan portfolio underscores just how important Scotiabank is to businesses and consumers in Jamaica.

It does not require much imagination to understand the impact that a portfolio of this magnitude would have on hundreds of businesses of all sizes and across all sectors within the Jamaican economy. The economic needs of tens of thousands of individuals have also been met by this aspect of the bank's operation.

Decades of unbroken profitability have not been without positive spinoffs; since 1967, hundreds of Jamaican shareholders have benefited from dividend payments.

Billions of dollars in profit have been retained to strengthen the institution's capital base and to boost its capacity to lend and to undertake big investments within the local economy. At the end of last year, the banking group had $60 billion in shareholder equity.

Last year, the Scotia Group generated revenues of over $30 billion from which it earned $14.2 billion in pre-tax profit and netted $10.2 billion.

A vital way in which Scotia has had a positive impact on the country is as a significant employer of labour with the bank counting more than 2,300 Jamaicans on its payroll.

This institution has been a leader in the development of the banking sector in many ways. It remains a fertile training ground for the nation's bankers — leveraging its Canadian connection both for formal training and for high-quality on-the-job learning experiences that have bode well for the industry. Staffers who have left Scotia have been able to take these valuable experiences to other institutions that lacked the connection and resources that allowed Scotia to dedicate so much time to training.

With its 50-branch network, Scotia can be found in nearly every major township throughout Jamaica, bringing its slew of services as close as possible to the doorsteps of its customers. It is they with their $114 billion in deposits in this institution who have been key enablers of its success.

But there is mutual reciprocity, because over the years, the bank has ensured that it has in place products and services that are tailor-made to suit its disparate customer base.

For example, those seeking to acquire homes can turn to Scotia Jamaica Building Society, while Scotia Life Insurance Company is there for anyone in the market for life coverage.

Scotia Investments Jamaica Ltd handles the financial affairs primarily of high net worth customers — individuals and corporations — while the commercial bank and its slew of retail services remain the foundation of the business model.

More recently this company has sought to reach out and pull the traditionally unbankable segment of the population under its umbrella. It is now actively wooing this market with the promise of funding their business with short-term credit ranging from $60,000 to $850,000 and with much more relaxed collateral and other pre-qualification hurdles.

The vehicle through which this latest service is being offered is called Scotia Jamaica Microfinance Company (CrediScotia).

Yet this organisation is continually upgrading the technological platform on which it delivers its service to customers — making these services more convenient and efficient. Each year it invests millions of dollars in pursuit of this corporate objective.

One example is the upgrade to its point-of-sale technology that it has been pursuing over the past year. At the end of this programme, these devices used by merchants to deliver card payment service to customers will be wireless and IP-capable.

Corporate clients are also expected to benefit from alternative financing that are now on offer through a newly established capital markets units within Scotia Investments.

But the bank's entry into the micro finance market stands out as the initiative that could potentially be an important game-changer for customers if only because Scotia has so much capital at its disposal to respond to demand if this market turns out to be as robust as early indications would suggest.

The fact is that micro-borrowing is a growing phenomenon in Jamaica. It is being driven in part by the high levels of unemployment across the economy, and the dwindling opportunities that many Jamaicans face in their quest for productive employment.

Many of these individuals either have ideas but lack the capital to bring them to fruition, or have started businesses but need more capital to grow.

Scotia's expectation is that small traders and manufacturers will likely be the category of entrepreneurs who will take advantage of this new lending window. The bank believes that by helping them grow many will eventually become regular users of its other services.

In many respects, Scotia is returning to its roots with its latest initiative.

The Jamaica venture made history because for the first time, the Halifax bank was being untethered from its North American roots. It was also the first time that any bank out of Canada was venturing into the Caribbean region.

The Canadians had compelling economic reasons to be here. Nine per cent of the island's imports — primarily salt fish, lumber and potatoes — came from their country. The suppliers were paid with rum and molasses under the barter arrangement that was in place.

Barter had served both countries well, but had outlived its useful life. It had become too cumbersome and restricted to support the increasingly complex trade between both countries. Moreover, with the advent of steam ships more Canadian tourists were taking a keen interest in the island.

Trading arrangements had to be monetised.

The local Scotiabank operation began with an initial paid up capital of $1.14 million. The Canadian owners also established a reserve fund of $400,000. Within four years, the local branch was in credit balance with its parent company. The bank was doing well. It was financially independent.

In 1906, the local managers established branches in Montego Bay and Port Antonio, placing Scotia in direct competition with Colonial Bank which, at the time, controlled the companies that were involved in the banana trade. Colonial had no intention of sharing this lucrative business with its competitor.

That same year however, the Government transferred its accounts from Colonial Bank to Scotia. The Canadians became the de facto central bank in Jamaica. That single act set this bank on a trajectory to become the island's leading financial institution.

Scotia continued to play that role until 1961 when the Jamaican Government created the Bank of Jamaica, shifting its accounts to the newly established central bank.

With Scotia's growth and success within the Jamaica market, Canada upgraded its status to a region in 1961, allowing the local entity more operational independence. Within two years, the bank introduced Scotia Plan Loans to Jamaica — a facility that greatly expanded the public's access to loans.

Canada took a giant step in 1967 towards 'Jamaicanising' the operation of its subsidiary here. It reconstituted the bank as a public company and offered 25 per cent of its shares to Jamaicans. The Bank of Nova Scotia Jamaica Ltd was born. Four Jamaicans were elected to the board.

The move was hailed by the Government as a positive step for Jamaica. Acting Prime Minister and Finance Minister Sir Donald Sangster was effusive in his praise of the Canadians; so was the opposition leader, Norman Manley.

In 1970, local ownership in the bank increased to 30 per cent.

But perhaps the most visible sign of the attempts by head office to live its credo — that BNS Jamaica was a local bank with foreign backing — was the decision in 1987 to appoint a Jamaican, Tony Lindo, as its first general manager.

Moses Jackson is the founder and convenor of the Jamaica Observer annual Business Leader Award programme. He may be reached at moseshbsjackson@yahoo.com

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